Loan Calculator

The Difference Between Annuity and Serial Loans

When taking out a loan, it’s important to understand the difference between the two most common loan types in Norway: annuity loans and serial loans.

Annuity Loan

With an annuity loan, you pay the same amount every month throughout the loan term. Each monthly payment consists of both principal and interest, but the ratio changes over time:

• At the start: High interest portion, low principal portion
• Over time: Interest portion decreases, principal portion increases
• At the end: Low interest portion, high principal portion

Advantages: Predictable finances with a fixed monthly cost. Easier to budget.

Disadvantages: Higher total interest costs over the loan’s lifetime.

Serial Loan

With a serial loan, you pay a fixed principal amount each month, while the interest is calculated on the remaining balance:

• At the start: High monthly payment (fixed principal + high interest)
• Over time: Decreasing monthly payment as interest is reduced
• At the end: Lowest monthly payment (fixed principal + low interest)

Advantages: Lower total interest cost. Faster repayment of the principal.

Disadvantages: Higher monthly cost at the start. May be more challenging financially early in the loan period.

Formulas

Annuity Loan

Monthly payment is calculated using the following formula:

Payment = Loan Amount × (r × (1 + r)^n) / ((1 + r)^n - 1)

Where:

• r = monthly interest rate (annual rate / 12 / 100)
• n = number of months (years × 12)

Serial Loan

The calculation is simpler:

• Fixed Monthly Principal: Loan Amount / number of months
• Monthly Interest: Remaining balance × monthly interest rate
• Monthly Payment: Fixed principal + monthly interest

Which Loan Should You Choose?

Choose an annuity loan if:

• You want predictable finances with a fixed monthly cost
• You have limited liquidity and need the lowest possible initial payments
• You prefer simple budgeting

Choose a serial loan if:

• You have good finances and can handle higher initial payments
• You want to minimise total interest costs
• You want to become debt-free faster
• You expect a higher income later (e.g. early in your career)

Example

For a mortgage of 3,000,000 kr with 4.5% interest over 25 years:

Annuity Loan:

• Fixed monthly payment: approx. 16,679 kr
• Total repaid: approx. 5,003,700 kr
• Total interest cost: approx. 2,003,700 kr

Serial Loan:

• First monthly payment: approx. 21,250 kr
• Final monthly payment: approx. 10,046 kr
• Total repaid: approx. 4,691,250 kr
• Total interest cost: approx. 1,691,250 kr
• Savings: approx. 312,450 kr

Other Factors to Consider

• Interest Changes: Most loans in Norway have a variable rate, so monthly payments may change
• Fees: Establishment, instalment, and other costs vary between banks
• Tax Deductions: Interest costs on mortgages provide tax deductions (22% of the interest)
• Flexibility: Options for extra payments, deferrals, or refinancing